WOW, what a turn of events at PIT

Summary: Bad news continues to come for Pittsburgh International Airport in 2018—from airlines not meeting expectations or others canceling flights or ceasing operations.  The common thread for these events is the presence of subsidies which were offered that distort the marketplace.

______________________________________________________________________

Pittsburgh International Airport (PIT) is having a very tough run.  At the end of November the Allegheny County Airport Authority announced that Qatar Airways’ cargo flights from PIT failed to generate their projected levels of cargo carried and thus obligated PIT to pay a “support fee” to the airline.  Then it was announced that WOW Airlines, another airline collecting PIT subsidies, is not offering flights to Iceland and from there to Europe after mid-January 2019.  This comes on top of the news just a few months ago that PIT is suing OneJet to recoup a loan. Shortly after that suit was filed, OneJet suspended all flights.  Then Delta announced it was cancelling its seasonal flights to Paris.  It’s fair to say that PIT has been hit with a run of very bad news during the second half of 2018.

We weighed in on the OneJet saga (Policy Brief Vol. 18, No. 32) and the decision of Delta to stop its seasonal flight to Paris (Policy Briefs Vol. 18, Nos.31 and 41) which occurred shortly after the Airport Authority announced it was giving a $3 million subsidy to British Airways to provide service to London beginning in the spring of 2019.

The Qatar Airways case is a bit different in that instead of receiving a subsidy to transport passengers to destinations previously unserved by other airlines—the Airport Authority’s justification for subsidizing OneJet, WOW, British Airways, Condor, etc.—Qatar was subsidized to carry cargo.  Before Qatar began operating at PIT in October 2017, the announcement of the added cargo service was accompanied by the usual enthusiasm and the promise of turning PIT into a logistics center.  News coverage of Qatar’s cargo service even mentioned that it might aid in attracting Amazon to the region.  Evidently, it was not a factor since Amazon is not coming to Pittsburgh.

Consider this:  in terms of cargo tonnage, PIT is ranked as the 53rd largest airport in the country by the Federal Aviation Administration, based on landed weight in 2017 (470.1 million pounds—roughly 235,000 tons).  Ten years earlier, in 2007, the airport ranked as the 48th busiest with 492.2 million pounds (246,100 tons) of landed cargo.  While things may be looking up2017’s landed cargo weight was 4 percent better than in 2016it still has not caught up to where it was before the last recession.

The Airport Authority took a gamble on Qatar Airways being able to boost PIT as a cargo center and lost.  From the news report in September 2017 it was claimed that Qatar planned to transport 200 tons of cargo to and from Pittsburgh each week from Doha to Luxembourg to Atlanta and then Pittsburgh.  Bear in mind that at the 2017 tonnage level, PIT averaged over 4,500 tons of landed cargo per week. So at the planned 200 tons per week Qatar would account for about 4 percent of PIT cargo handled.

Under the arrangement the authority was obligated to pay Qatar a “support fee” of $744,000 every six months if the carrier failed to average 480 tons of cargo per month—about half the planned 200 tons per week. It never came close to 480 tons. The authority paid the airline two installments for a total of $1.48 million for the year.  According to recent news, the best month for the airline netted only 180 tons (October 2018) and before that 163 tons (October 2017).  In June 2018 only 99 tons were carried with a further drop to only 61 tons in September.  The route was even changed to go through Chicago instead of Atlanta and two sales agents were hired to boost cargo totals and it still was not enough.

While Qatar is still operating at PIT, presumably without the subsidy, there have been news reports stating “that could potentially change if another deal is reached between Qatar and the authority.”

The authority still has dreams of being a logistics center—but at what cost?  The other, non-subsidized cargo haulers such as FedEx and UPS are at PIT and offering service because the market is strong enough they can do so profitably and without subsidies.  How will they react if Qatar is given additional subsidies to compete with them?  Will they ask for subsidies as well? The Airport Authority may have painted itself into a corner in their attempt to manipulate the market.

WOW Airlines’ decision to stop offering flights past mid-January was not a surprise but speaks to the lack of real demand for flights to Europe.

WOW has already stopped flying out of Cleveland and Cincinnati, with service lasting only from May to October from the latter, and will cease operating out of St. Louis in January, again after a brief stay of just eight months.

According to a Cleveland news report, WOW’s statement noted that the routes did not perform as well as hoped and that load factors were not achieving target levels.  Similar reasoning was used when pulling out of St. Louis while high cost and low profits were reasons for leaving Cincinnati.

WOW committed to Cleveland in August 2017, shortly after committing to PIT (June 2017).  Both airports subsidized the airline.  Cleveland offered $1 million over two years while PIT offered $800,000 over two years. St. Louis also offered $800,000 over two years but due its short time in that city, WOW failed to qualify for the agreed-upon subsidy.  News concerning the cessation of Cincinnati flights did not mention whether subsidies had been given to the carrier.

In Cleveland, WOW competed head-to-head with Icelandair with bad results.  According to another Cleveland news article, Icelandair was in talks to purchase WOW but those talks failed and the merger was called off in late November, just before WOW announced it was cancelling service at PIT. The article notes that with the failed merger, WOW’s “future is up in the air.”

So after an aggressive expansion campaign in 2017, and collecting taxpayer subsidies, WOW’s future is very much in doubt at the end of 2018.  It seems unlikely the airline with resume flights at PIT anytime soon—if ever.

Propping up business enterprises with public funds is not only a high-risk practice but it represents interference in the marketplace and begets ever more subsidies undermining the role of markets. This is especially egregious in the effort by PIT to artificially create travel to certain destinations by underwriting the cost of the fares.

It is folly on its face. Because to be truly successful in terms of sustaining adequate passengers loads for the flights, the subsidies would have to go on forever given that the real underlying demand is not there.   Perhaps the Airport Authority will learn a valuable lesson from 2018’s embarrassing failures and all the money that it has wasted.

Time to tighten Act 13 reporting

Summary: In February 2012, Act 13 was adopted not only to establish an impact fee for drillers in Pennsylvania’s shale formations, but also to set up rules governing both the allocation of the fee revenue to local and state government as well as to specify how the money can be used by the municipalities and counties receiving the funds.  All are required to report to the Pennsylvania Public Utility Commission how Act 13 proceeds have been spent.  However, not all municipalities are diligent in meeting those reporting requirements.

______________________________________________________________________

From 2011 to 2016 municipalities in the seven-county Pittsburgh Metropolitan Statistical Area (MSA)—Allegheny, Armstrong, Beaver, Butler, Fayette, Washington and Westmoreland counties— received $104,623,116 from the impact fee collections. While “fracking” has received plenty of attention, little attention has been paid to local accountability regarding Act 13 revenue usage. This Brief will look at municipalities in the Pittsburgh MSA.

Municipalities receiving impact fee revenue must submit annually paperwork to the Pennsylvania Public Utility Commission (PUC) demonstrating how the payments have been used in the 13 legislatively designated categories.

They are: 1) Construction, reconstruction, maintenance and repair of roadways, bridges and public infrastructure;

2) Water, storm water and sewer systems;

3) Emergency preparedness and public safety, including law enforcement and fire services, as well as hazardous material response, 911 and equipment;

4) Environmental programs, including trails, parks and recreation, open space, flood plain management, conservation districts and agricultural preservation;

5) Preservation and reclamation of surface and subsurface waters and water supplies;

6) Tax reductions, including homestead exclusions;

7) Housing projects to increase safe and affordable housing;

8) Records management, geographic information systems and information technology;

9) Social services;

10) Judicial services;

11) Career and technical centers for training of oil and gas industry workers;

12) Local or regional planning initiatives under the Pennsylvania Municipalities Planning Code;

13) Placed in the municipality’s capital reserve fund that can later be used in the aforementioned categories.

It’s important to note that municipalities are not obligated to spend Act 13 funds in the year they are received. The municipality’s capital reserve fund can act as a savings account for the assets to be used at a later date.

Within the Pittsburgh MSA the most popular categories for municipal fund use have been capital reserve fund and public infrastructure/construction.

Municipalities in Allegheny County, that did report, placed 39 percent of their Act 13 revenue in their capital reserve funds from 2011 to 2016. Over the same period, Allegheny County municipalities spent 30 percent of their impact fee allocation on public infrastructure and construction.

Act 13 mandates municipalities submit a yearly report to the PUC disclosing expenditures. This basic form requires the municipality to indicate the dollar amount spent or allocated for future use within the 13 categories.  Yet many municipalities have failed to meet the reporting requirement. Under Act 13 regulations if a municipality fails to submit the annual Municipal Approved Budget Report, the municipality will be limited to a maximum of $500,000 in annual future distributions from the Unconventional Gas Well fund. But within the Pittsburgh MSA, a penalty has never been assessed because none of the municipalities failing to report ever received more than $500,000 a year from Act 13 fees and, presumably, never expected to get as much as $500,000.

In 2016, 45 municipalities out of a total of 130 in Allegheny County failed to report their Act 13 details to the PUC. This has improved since 2012 when 95 municipalities failed to do so. The best year for reporting was 2015 when just 31 municipalities did not report.

For example, since the impact fee was established, the City of Pittsburgh has disclosed the use of its shale dollars one time, in 2013. Brentwood Borough, McKeesport City, Pleasant Hills Borough and Sewickley Borough have never reported how their impact money was used.

Meanwhile, municipalities in other counties had lower rates of reporting non-compliance.  In 2016, four municipalities out of 57 in Butler; Washington, five municipalities out of 66; Armstrong, eight municipalities out of 45; Fayette, nine municipalities out of 43; Westmoreland, 18 municipalities out of 65.

Since Act 13 passed, the mandate that municipalities report annually how they spend their impact fee allocations has been obeyed by the vast majority of municipalities in the seven counties of the Pittsburgh MSA. Overall, municipalities within the MSA have improved their reporting from 2011 to 2016.

Allegheny County municipalities received a total of $2,797,742 from 2011 to 2016 compared to Washington County’s municipalities’ $55,412,444. Clearly, municipalities in Washington County have a substantial amount of fees to lose if they fail to comply with reporting and thus are more motivated to report fund usage than municipalities in Allegheny County. Washington County’s municipalities have received the largest amount of fees in the MSA, followed by those in Butler, Fayette, Westmoreland, Armstrong, Allegheny and Beaver counties.

However, municipal accountability should not be contingent upon the dollar amount received but upon the principle of financial accountability and transparency.

Governments must be responsible for all actions including accounting for where all revenues are spent. Municipalities receiving Act 13 funds, regardless of the amount, are required to report the use and should do so. It’s not a municipal choice but an obligation.

The Legislature should revisit Act 13 and amend it to penalize municipalities that fail to report how impact fee revenues are used by withholding all future allocations regardless of the amount they would have received until they are in compliance by submitting reports for all past years when no reports were filed.

Failure to correct this loophole leaves open too much opportunity for funds to be used as municipalities wish as opposed to the uses designated by law.

Happy Thanksgiving

The staff of the Allegheny Institute extends its warmest wishes to our readers, their families and friends for a joyous and happy Thanksgiving.

And we commend to all the words of President Harry Truman, from 1952:

“In Thanksgiving we have a purely American holiday – fashioned out of our own history and testifying to the religious background of our national life. That day expresses what we mean when we say that our form of government rests on a spiritual foundation.

“It is from a strong and vital church – from the strength and vitality of all our churches – that government must draw its vision. … But we cannot keep the vision strong, or carry it out, without God’s help. And the churches must help us keep that vision always before us.”

Pittsburgh teams fight back: ineffectively

Summary: Pittsburgh’s major sports franchises banded together to pay for a study that purports to show how important the teams are to the economies of the city and region. Unfortunately, the study is not convincing—nor is the teams’ commentary offered in its support.

______________________________________________________________________

Results of the PricewaterhouseCoopers study were released in summary form to at least one newspaper –the Post-Gazette—that reported the findings. As best as can be determined that summary is all anyone outside the preparer of the study and the teams have seen.  The full report with statements defining methodology and data sources has not been made public—no doubt because team information would be revealed. Thus, the principal finding of direct and indirect employment of 10,100 annually and a five-year employee wage total of $3.2 billion must be taken with a hefty degree of skepticism. And the implied claim that the teams are major economic generators with $6 billion in direct and indirect spending over five years is unsubstantiated.

Simply stated, whether the real number is anywhere close to $6 billion is questionable since we are not allowed to see the numbers for direct spending by the teams and, just as importantly, what is included in those figures.  Multiplier effects for recreation spending are very low or non-existent. Moreover, set alongside a truly important economic driver in the city, the economic impact numbers claimed by the teams as reported in the study are not impressive.

For example, Carnegie Mellon University’s 2017 financial report shows an annual payroll of over $600 million and annual expenditures in excess of $1.1 billion.  So, in five years its direct payroll would be $3.6 billion and since a great share of revenue at the university is from outside the city and region, the multiplier effects on Pittsburgh would be far greater than the sports teams’ revenue that comes in large part from ticket sales and concessions.  The University of Pittsburgh, UPMC and Highmark all individually swamp the teams’ combined local economic impact.  No doubt many larger local companies with hefty exports from the region would as well.

One spokesperson took it upon himself to make somewhat disparaging remarks about other cities across the country in response to criticism that money spent on sports events is money not spent elsewhere in the region.  He was quoted in the Oct. 29 Post-Gazette article as saying, “Yeah, they’re dispersed in Tulsa and El Paso and Fresno, and they’re dispersed in other places that no one’s ever heard of that are twice as big as Pittsburgh.”

The teams, he asserted, give the Steel City a cachet that many other cities don’t have.

“I believe strongly having these three sports teams has significant economic impact that allows us to punch over our weight as a city in competition with other cities and brings intangible benefits that separate us from larger cities, similar cities this size, cities that have sports teams and, most definitely, cities that don’t have sports teams,” he said.

Well, this person might want to consider that since 1990 Tulsa’s private-sector jobs count has climbed 38 percent through September 2018 while Pittsburgh jobs are up only 16 percent during the period.  Or that El Paso’s jobs are 48 percent above the 1990 level.  Alternatively, he might want to think about Pittsburgh’s population loss since the stadiums were built. From 2000 to 2017 the city has dropped from 334,563 to 302,407 residents—a decline of almost 10 percent.  Allegheny County recorded a loss of nearly 60,000 residents over the period.   Meanwhile, Tulsa and El Paso have seen population growth with El Paso up a hefty 22 percent.

Many other cities with no major sports franchises have seen substantial population gains as well, including Austin. In 2000 Austin at 656,000 residents was twice as big as Pittsburgh. But in 2017 Austin’s population had swelled by 49 percent above the 2000 level to stand at 950,715. Austin is now three times the size of Pittsburgh. Consider too Greensboro, N.C., where population rose from 223,880 in 2000 to 291,223 (30 percent) in 2017 and is within 11,000 of Pittsburgh’s population.

So perhaps the teams’ spokespersons should find another approach to bragging about how important the teams are to the economy, especially with the looking down-the-nose disparagement of cities that do not have sports teams.  “No one’s ever heard of those towns,” he quipped. Yet amazingly somehow they continue to do very well.

Indeed, the city that best mirrors Pittsburgh in population change is St. Louis where population fell from 348,000 to 308,000, a drop of 11 percent. Until 2015, St. Louis had football, hockey and baseball franchises including the 11-time World Series champion Cardinals—who outdrew the Pirates by nearly two million attendees in the 2018 season.

Finally, the claim that 4 million people come to the city to attend sports events and concerts each year at the facilities is somewhat deceptive. The figure actually represents attendance at events, not individual persons. Large numbers of season-ticket holders and repeat visits by other people in the city, county and region account for much of the attendance at games. And some attendees no doubt go to football and baseball games as well as hockey games. Not counting city residents, the number of individuals making visits to the city for sports events and concerts is likely to be well under half-a-million and perhaps even a quarter-million.  Season tickets are expensive.

In short, comments by team spokespersons about the study are largely self-serving and overblown rhetoric and seemingly unaware of how well other cities are doing despite not having major league sports.  They might also want to look at Buffalo and Detroit as examples of what sports teams cannot do for a city. Clearly, there are many factors far more important for economic growth than sports.  Business climate, taxes, the regulatory environment and costs and burden of government come to mind.

Are public subsidies propping up international travel at PIT?

Summary: From 2015 through 2017, international travel from Pittsburgh International Airport has increased from both a passenger and number of flights perspective. However, this may be more a result of subsidizing airlines flying to Europe than a natural demand for travel. This is borne out by the fact that Delta, once the sole provider of nonstop flights to Europe, has eliminated its only seasonal flight to the continent in the face of new, and subsidized, competition.
______________________________________________________________________
On July 25, Pittsburgh International Airport (PIT) announced a $3 million subsidy to British Airways to begin non-stop flights from Pittsburgh to London’s Heathrow Airport in April 2019. One month later, on August 22, Delta Air Lines announced it was ending its flights from Pittsburgh to Paris. From 2009 until 2017, Delta provided the only non-stop flight from PIT to Europe. But in 2017 the Allegheny County Airport Authority began subsidizing other airlines to offer flights to Europe—WOW and Condor Airlines in 2017 and British Airways in 2018. The latter two are non-stop and, apparently in Delta’s view, are creating too much low cost competition for their Paris flight to remain profitable, either through having to suffer declining passenger count or because of the necessity to lower fares to maintain volume.

It is axiomatic that when subsidies are given to induce new airlines to offer flights out of PIT to specific destinations there will be consequences for existing carriers, with especially severe consequences if the subsidized flights are in direct competition with existing flights. More generally, offering subsidies to induce any carrier to start a new route is an admission that unsubsidized, the route is not profitable because basic demand is not there. Unfortunately, this is a lesson the authority seems unwilling to learn or even acknowledge.

Indeed, in a news release the official explanation from Delta is that the route was canceled “due to increased transatlantic capacity in the Pittsburgh market.” Loosely translated, there are too many seats and not enough passengers to fill them. Compare that with the remarks from a British Airways spokesperson just one month prior to Delta’s announcement that there is pent-up demand for travel from Pittsburgh to Europe (Policy Brief, Vol. 18, No. 31). To get some clarity, this Policy Brief examines international passenger and flight statistics from 2015 to 2017 (the latest data available) courtesy of the U.S. Department of Transportation’s Bureau of Transportation Statistics.

The sample analyzed includes 15 airports of similar size to PIT—those ranking from 38th through 52nd by all (domestic and international) enplaned passengers. PIT ranks as the 48th largest airport ranked by total enplanements. Note that “international passengers” counts all passengers traveling to another country and not just Europe—including Canada, Mexico, Caribbean countries, etc.

Regarding international passenger growth, PIT fared quite well with total origination and destination passengers increasing from just over 103,000 in 2015 to just over 200,000 in 2017. WOW airlines’ flights to Iceland with connections on to Europe began in 2017 were highly touted and, more importantly, subsidized, had a good start accounting for over 41,100 of the 97,000 increase compared to 2015.

Then too, three Canadian airlines (Air Georgian, a subsidiary of Air Canada, Jazz Aviation and Porter Airlines) also contributed substantially to the two-year rise in passengers with a net increase of over 36,000 passengers from 2015 to 2017 (Air Georgian began service in 2016 and Jazz, after a full year in 2015, greatly reduced operations beginning in 2016.) Allegiant, American and Delta had minor gains in their international passenger count over the two-year period.

PIT’s 94 percent jump in international passengers ranked third in the 15-airport sample behind San Jose (117 percent) and Milwaukee (110 percent) and just ahead of Raleigh (70 percent) and Cleveland (50 percent). From 2015 through 2017, the majority of airports in the sample had growth in international passengers with the exception of Santa Ana, down 24 percent, San Antonio, down 21 percent and San Juan, Puerto Rico, down 9 percent. Bear in mind that San Juan was hit with a major hurricane in 2017. For all commercial airports across the United States, the international passenger growth rate was 11 percent.

For the number of origin and destination flights, PIT’s growth was much more modest than passenger counts at just 19 percent, going from 3,036 flights in 2015 to 3,617 in 2017. WOW airlines lead the way adding 252 flights in 2017. Porter Airlines added 175. American added 65 international flights to its schedule and Condor added 42.

PIT’s growth of 19 percent for the two-year period ranks sixth-strongest in the sample, behind San Jose (124 percent); Raleigh (40 percent); Milwaukee (36 percent); Cincinnati and Kansas City (22 percent each). For all airports in the country, the growth in international flights was 7 percent from 2015-2017. Six airports in the sample had decreases in the number of flights, including Columbus (-4 percent); Cleveland (-7 percent); San Juan (-16 percent); Santa Ana (-22 percent) and San Antonio (-23 percent).

So it appears PIT is doing quite well with growth in international passengers and flights. But keep in mind there has been growth at most similarly sized airports and for airports as a whole across the nation. Also bear in mind that roughly half of the flight count increase at PIT was accounted for by subsidized carriers WOW and Condor.
Another factor to consider is the “load factor,” which is defined as the ratio of passenger miles flown to the number of seat miles available.

The load factor for international flights originating at PIT was 70.72 percent in 2015 and was the fifth-lowest (10 were higher) in the sample of 15-similarly sized airports and well below the all-airport rate of 80.64. By 2017, the origination load factor for domestic flights out of PIT increased 6 percent to 75.30 climbing to sixth best (nine were lower) in the sample—but still below the load factor for all airports. Interestingly, six of the 15 comparably sized airports experienced declines in the load factor of originating international flights from 2015 to 2017. But it is worth noting that only two of the airports in this sample—Kahului, Hawaii (88.17) and Sacramento (84.36)—are above the all-airport rate of 80.64.

It appears the assertion by British Airways that there is pent-up demand for international travel from Pittsburgh is not substantiated by PIT’s load factor for originating international flights. Even with subsidies to two new airlines, the planes are not as full as the national average. Clearly, there has been growth in international passengers and flights at PIT over the last couple of years. But given the hefty increases at other midsized airports and overall growth in travel, some of the gains can be attributed to an increasingly robust national economy.

Moreover, based on the carrier passenger and flight data presented herein, much of the increase in flights and passengers were to/from Canada. The European passenger increase was closely tied to subsidized travel. The clear implication is that absent the WOW and Condor subsidies, passenger counts to Europe would not have jumped and that the British Airways claim of pent-up demand is not accurate—not in any rational economic sense.

Yet the Airport Authority keeps handing out subsidies to airlines flying to Europe and other airlines offering flights to previously unserved domestic destinations (OneJet for example). In the process, they undermined the Delta route to France—remembering that Delta received its own subsidy from the Allegheny Conference on Community Development and the state for the first couple of years (2009-2011). Once the subsidy ended, the flight continued on a seasonal basis, before shutting down this year. The irony is not lost.

Will these other subsidized airlines follow suit? Will they stay as long as the money flows and then fold when the “pent-up demand” fails to materialize? And if there is actual real demand for travel to Europe, is the Airport Authority unwittingly discouraging domestic carriers from offering the service? Subsidizing private companies is folly.

Taxpayers should not be assuming the associated risk. Recall that PIT receives gaming money from the state that otherwise could be much better used for property tax relief.

If demand is truly there, the airlines will create supply and assume the risks attendant to the commercial-carrier business.

Proposed charter amendment to increase county tax is a terrible idea

Summary: Voters in Allegheny County will decide whether the county Home Rule Charter will be amended to establish a “Children’s Fund” and mandate a permanent 0.25 mill add-on to county property taxes. Questions regarding the referendum’s goals, revenue distribution and oversight are discussed in this Brief. But the bottom line is the misuse of the county charter-amendment process to create a special fund that will require an add-on property tax. Special funds should be created and funding should be done through the legislative process so they can be deleted or amended without a subsequent charter amendment. Moreover, in view of taxpayer opposition to high property taxes already and with efforts constantly underway to get relief through exclusions and tax-shifting, the proposal to add an unavoidable, permanent and unchangeable tax is stunningly obtuse and should be rejected.

The following question is on the November ballot because supporters of the measure were able to get required signatures to amend the county charter per the state’s Home Rule Charter and Optional Plans Law.

“Shall the Allegheny County Home Rule Charter be amended to establish the Allegheny County Children’s Fund, funded by Allegheny County levying and collecting an additional 0.25 mills, the equivalent of $25 on each $100,000 of assessed value, on all taxable real estate, beginning January 1, 2019 and thereafter, to be used to improve the well-being of children through the provision of services throughout the County including early childhood learning, after-school programs and nutritious meals?”

The charter can be amended by a referendum following an ordinance passed by County Council or by a voter-initiated petition as prescribed by the Home Rule Charter and Optional Plans Law. In 2005 voters approved a measure to eliminate several row offices based on a council ordinance directing the question be placed on the ballot.

The current county millage rate is 4.73 mills and is estimated to raise $367 million in 2018. Two of the county’s five operating funds (general and debt service) receive all of the revenue from the property tax. Based on the estimated collection and the current millage rate the increase would raise around $19 million annually. If the referendum is approved, the county’s tax rate would increase to 4.98 mills. The tax increase would apply to all taxable real estate in Allegheny County, both residential ($54 billion) and non-residential ($24 billion).

While there have been a few municipal and school district-based ballot questions to increase property taxes for a specific purpose, there has never been one asking the voters countywide to increase the property tax.

The questions on the desirability of having a mandated tax increase for the creation of the special fund are numerous:

1) How much is already being spent in Allegheny County from various sources (federal, state, local, school districts and non-profits) on the programs the proposed fund supports? It is possible that not only the county itself expends money that it receives directly from other levels of government but school districts are likely administering these programs with money from federal and state sources.

2) Why ask the county to do the job of school districts? If the goals desired by the people who want the fund created are more connected to the functions of the 43 school districts in the county rather than the county government itself, why should the county get involved? Note that in the current fiscal year, school property taxes in 27 districts were increased.

3) What are the outcomes of these programs? Where is the a priori proof that spending more money on early childhood education and after-school programs will advance the educational goals above the hundreds of millions expended from federal, state and local sources in the county on public education presently? Are there studies that prove current spending is making a measurable difference in academic or disciplinary outcomes? Strong evidence that the program will work and not be just another waste of tax dollars ought to be demonstrated and should be debated by the council in open sessions before asking voters to approve the tax hike.

4) How will the money be distributed? If the tax were to be approved there would have to be policies and guidelines for whom could apply for the money and possibly maximum annual awards. The referendum question merely asks that an additional tax be levied to establish a new fund. It says nothing about how that fund would be managed or by whom, presumably leaving all those decisions to the executive and the council. And that will, in turn, require new legislation to be written, approved and implemented. In that regard, the proponents of the ballot question have proposed an article to be inserted into the charter that details the roles of the county manager, executive and council, an advisory commission, audit requirements and distribution of the money according to “(1) need, (2) effectiveness, and (3) fair and equitable allocation”. However, if—and it is a very big if—the question is approved it would be the responsibility of the council to draft implementing legislation and it may choose not to adopt the language offered by the ballot proponents.

Who will make the fund allocation decisions? It is almost a certainty that a new entity would be created with a board and a fund-distribution manager. Setting up criteria for who gets money and how much each year would become a political nightmare. Each council member will push for his/her district to get a “fair share”. It seems unlikely however that the council would want to take on the added duty of handling requests for funds and deciding specifically who would get funding and how much. If a new entity is created, it will have some staff that must be paid. Who will do the hiring/appointing of a director and staff? The chief executive, the council? It would be up to the implementation legislation to determine.

But the more obvious and pressing problem is the proposed property tax increase itself. Taxpayer opposition to property taxes and increases in them are a huge issue in Pennsylvania. Legislative efforts to eliminate or drastically reduce school taxes have been underway for a long time with legislation that allows shifting to other taxes and proposals to eliminate altogether through homestead exclusions. The Tax Foundation has reported that Pennsylvania’s property tax system is outmoded, hard to understand and creates unfairness. The Allegheny Institute has highlighted Pennsylvania’s problems with property taxes for years. But little progress has been made to correct the inadequacies.

However, there is one thing almost everyone can agree on. Property taxes are too high. And, importantly, they impose huge burdens on businesses because the level of taxation is unrelated to the ability to pay.

In short, the proposed tax increase is neither justified nor desirable. It flies in the face of good governance and opens the door to substantial needless political wrangling over how the money will be used and by whom.

Does the Pa. school consolidation law need an overhaul?

Summary: A study by an education advocacy group called EdBuild examined the consolidation laws of the 50 states and the ways in which the composition of school districts can be altered. Given past experience, consolidations in Pennsylvania seem very unlikely.

The U.S. Census of Local Governments shows that from 1952 to 2012 the number of school districts in the nation decreased from 67,355 to 12,880 (81 percent) through consolidation (this will be used as the blanket term for consolidation, merger, annexation, etc). Much of the decrease came between 1952 and 1972 when the total count of school districts fell by 51,574.

In 1952 there were 15 states, including Pennsylvania, which had at least 2,000 school districts each, with 57,262 school districts total. Two decades later the total in those states had fallen to 10,341 and only four (California, Illinois, Nebraska and Texas) maintained more than 1,000 districts at that point. Only California and Texas had more than 1,000 districts as of the 2012 census.

Compared to earlier decades, the pace in school district consolidation has slowed considerably. Since 1992 the only significant decreases in school districts (at least 20 percent between census years) occurred in Arkansas, Minnesota, Montana, Nebraska and Oregon.

In Pennsylvania, school district consolidation was driven by two acts of the General Assembly in the 1960s. Those led to the reduction in the number of districts from 2,506 to 528 by 1972, eventually working down to 501. The current statutory language on “combination of school districts” permits two or more school boards to pass resolutions indicating a desire to combine. That is followed by an application to the state Board of Education which then approves or denies the application with recommendations. The Central Valley School District combination between the Monaca and Center school districts a decade ago was carried out under this language and brought the state’s district count to the current 500.

That is the lone example of a voluntary consolidation to date. The EdBuild study noted that three districts in Allegheny County (Clairton, Carlynton and Moon) that wished to consolidate in the years 2011 through 2014 could not find a willing district to go along with the request. Allegheny County has two districts where part of the education program has been shuttered and students assigned to different districts. This occurred in the Duquesne School District and more recently in the Wilkinsburg School District. These occurred outside of the current combination law. Where Pennsylvania’s financial recovery statute (Act 141 of 2012) mentions consolidation it refers to intra-district functions rather than consolidating a financially troubled district with a solvent one.

The study presents a typology of the 50 states based on whether existing state laws have provisions for mandatory consolidation that can be carried out by state directive, voluntary consolidation that can be carried out by school districts either through their boards or voter approval and if incentives are offered by states to districts that do consolidate.

Hawaii has one statewide school district and Maryland has countywide districts but no language in state law on either mandatory or voluntary consolidation, so both are omitted. Of the 48 remaining states, one state, South Carolina, has language in state law pertaining to mandatory consolidation only. There are eight states that have mandatory consolidation provisions but also permit voluntarily consolidation. That leaves 39 states, including Pennsylvania, where consolidation is an entirely voluntary matter with no mandatory consolidation language in state law. In states with pure or mixed voluntary consolidation there is involvement by either the voters of each affected district, the school boards of each affected district or both, along with some state-level education official or board.

Where there is mandatory consolidation language on the books it is usually predicated on enrollment (South Dakota), academic performance (Oklahoma) or finances (Kentucky and Washington) or some combination of those factors.

Of the 39 states that are purely voluntary consolidation states, 21 of these offer incentives for consolidation or enhanced state aid to consolidated districts, often for a limited period of time. Pennsylvania maintains small district assistance if a district received it prior to a consolidation for a period of five years for the new consolidated district. In Ohio state aid is guaranteed for three years and, in some instances, debt may be canceled, according to the study.

Over the years there have been suggestions that Pennsylvania transition to countywide districts like Maryland, West Virginia and Florida. A 2007 study that examined the optimal size for a school district in Pennsylvania found that economies of scale were achieved when districts reached around 3,000 pupils. Currently 323 districts have an enrollment less than that. Not long after the study the governor at the time suggested a reduction to 100 districts with a mixture of countywide and multi-municipal districts, a plan that that did not go very far.

The Allegheny Institute has looked at the consolidation issue. A priori arguments for consolidation include potential cost savings, economies of scale, enhanced educational offerings and elimination of duplicative functions.

On the other hand, few consolidations occur because there are deep seated local objections and serious economic reasons for not pursuing consolidation. First, there are union contract differences (including pay scales, work rules, pension and other benefits) that can lead to impossibly difficult mergers of the workforces. Second, school board membership post-consolidation could be extremely problematic, particularly if the districts are very different in size. Third, there may be different tax rates and debt levels that could and likely would be an impediment. And fourth, for many communities, the schools can be and often are a source of local identity and pride, especially with athletics and team loyalty.

Those obstacles to consolidation have been in play and have largely forestalled voluntary consolidations. And they will be in the forefront in any debates over proposed legislation to mandate consolidations.

Livability rankings tell us very little

Summary: Livability rankings are very subjective.  The notion of livability will vary from person to person depending upon circumstances or individual tastes and preferences.  Yet they are big news in a city or region when the results are favorable.  This Brief examines two recent livability rankings to show just how different they can be.

 ____________________________________________________________________

In late August, The Economist Intelligence Unit (EIU), and its sister company The Economist newspaper, released a ranking of the most livable cities on earth.  Pittsburgh media and officials were giddy to learn that the city landed as the 32nd most-livable city in the world and was the second-highest-ranked American city behind Honolulu.

Bear in mind, however, in the spring of 2018, U.S. News & World Report ranked the 125 most populous metro areas in the United States.  According to this ranking, the Pittsburgh area ranked 57th (Honolulu ranked 35th).  Not a lot of media attention, if any, was paid to this ranking of the Pittsburgh area.  So, can anything useful be gleaned from these rankings?  Or are they essentially meaningless exercises?

In the EIU’s methodology each city was evaluated based on qualitative (non-numeric) measures and quantitative (numeric) measures. The qualitative measures were based on the judgment of an in-house expert on that country and a field correspondent in each city.  For quantitative variables, the rating was based on the relative performance of a location using external data sources such as the World Bank or Transparency International.  Of the 30 categories listed, only four, (13 percent), were quantitative or data driven, meaning that the other 26 (87 percent) were based on the judgment of individuals.  Thus, the EIU ranking methodology is extraordinarily subjective rather than based on objective, verifiable facts.  Which is appropriate since the whole notion of livability is very subjective.

The EIU based its ranking on five main categories:  stability (25 percent of total); healthcare (20 percent); culture and environment (25 percent); education (10 percent) and infrastructure (20 percent).  The ratings were on a 100-point scale with anything in the 80-to-100 range meaning “there are few, if any, challenges to living standards.”

Pittsburgh’s best score was in the education category (100, or ideal).  There are three sub-categories to this measure:  availability of private education; quality of private education and public education indicators.  The first two were qualitative while the latter was adapted from World Bank data.  No mention as to what levels of education were evaluated—k-12, higher education, or both.

For livability the most important educational level is, or ought to be, k-12. And for that group our work has demonstrated many times that the Pittsburgh Public School District consistently underperforms academically and has seen drastic declines in enrollment despite spending well above $20,000 per student. Indeed, poorly performing public schools have long been a motivation for parents with school-age children to leave the city or put them in other schools. How could a reasonable, knowledgeable observer possibly give Pittsburgh a 100 percent rating on education?  Consider that just over a year and a half ago the district was excoriated by the Council of the Great City Schools (Policy Brief, Vol. 17, No. 4) for not improving student achievement since its previous report 10 years earlier.  Anyone following Pittsburgh schools should have known about that extremely critical study. In short, the EIU ranking on education is bogus.

Infrastructure was the city’s second next highest rated category (96.4). The sub-categories are: quality of road network; quality of public transportation; quality of international links; availability of good quality housing; quality of energy provision; quality of water provision and quality of telecommunications.  All are qualitative variables and interpreted subjectively.  The standout sub-category here is the quality of water provision.  As was documented in Policy Brief, Vol. 17, Nos. 14, 29 and 49, the Pittsburgh Water and Sewer Authority (PWSA) is beset by major problems with water main breaks in the 100-year old system and does not have the funds to do necessary repairs and replacements ($5 billion) to update the system.  It now is under the oversight of the state Public Utility Commission.

Obviously, the judgment of the EIU experts did not include “cost of provision” of public transportation. As was shown in Policy Brief, Vol. 18, No. 18, the cost of Port Authority bus operations is the second-highest in the country. Only New York City bus operations are more expensive.  Perhaps they were impressed by the tunnel under the river to the North Shore.  But that was built with a hefty half-billion dollar price tag (Policy Brief, Vol. 12, No.10) and offers free rides despite additional operating costs.

Nor did the judgment of the experts factor in the use of public subsidies to prop up the new international flights at Pittsburgh International Airport in the quality of international links.  Subsidies have been doled out to WOW, Condor, British Airways and Delta Airlines the only U.S. carrier. And Delta recently canceled its service to Paris. Without taxpayer handouts, the flights to Iceland, Germany and England would likely not have happened as the demand for unsubsidized travel from Pittsburgh to these destinations is just not adequate to justify the service.

Interestingly, the lowest scoring category was culture and environment (87.7).  There are nine sub-categories in this section of which only two are quantitative (humidity/temperature rating and level of corruption).  The others include discomfort of climate to travelers; sporting and cultural availability; food and drink; availability of consumer goods and services and social or religious restrictions.  Given the amount of money the taxpayers have ponied up for world-class sporting facilities, not to mention the Regional Asset District subsidies handed out to cultural amenities, city officials must undoubtedly believe they were short-changed on this category. And as for climate discomfort for travelers, how is that remotely connected to livability?

Given that the EIU relied mostly on qualitative, or observational, data to compile their scores the City of Pittsburgh obviously looks good to those on the outside.  But the façade belies the extraordinarily high cost of city government and the high tax burden placed on its residents, which is often the primary reason for the outflow of residents.  In a national comparison of city management, Pittsburgh ranked among the very highest in taxes and government cost per resident (Policy Brief, Vol. 16, No. 34).

Contrast the EIU ranking with that of U.S. News & World Report’s “Best Places to Live” ranking which looks at the seven-county metropolitan statistical area (MSA) and not the city proper.  The methodology relies more on quantitative, or numeric, data.  The five categories are:  job market index (20 percent of total); value index (25 percent); quality of life index (30 percent); desirability index (15 percent) and net migration (10 percent).  Pittsburgh’s MSA score was 6.5 (on a 0-10 scale), good for 57th place on the list.

The highest score was with the value index (7.8) which looks at the median annual household income for both homeowners and renters (blended together) and compares that to the annual cost of living in the MSA.  The annual cost includes an estimated cost for housing—mortgages, utilities and taxes for homeowners and utilities and rental prices for renters.

The lowest score came in net migration (5.6) which took data from the U.S. Census on those moving in and out of an area, adjusted for deaths and births.  The underlying premise is that migrants vote with their feet and will choose the best areas in which to live.  Top ranked Austin, Texas, scored a 9.4 on this measure.

The area’s job market index was the second-lowest score (6.1).  It measured the 12-month moving unemployment rate from the U.S. Bureau of Labor Statistics (BLS) with the purpose of seeing whether or not the area’s job market is growing, struggling or remaining stable.  The other part of the index looks at the average salary in the MSA (according to BLS data).  We have commented frequently on the area’s labor market (Policy Brief Vol. 18, No. 23) and have found  it to be stagnating at best with low growth in the goods-producing sector (mining, manufacturing and construction) while experiencing moderate growth in service-providing sectors (especially leisure and hospitality along with education and health).

The metro also did not fare well in the quality of life index scoring just 6.2 of 10. This index is comprised of five measures:  crime rates; quality and availability of health care; quality of education; well-being and commuter index.  What stands out here is the quality of education which is worth 25 percent of the score.  It uses data from the U.S. News Best High Schools rankings which calculated the average college readiness score for all schools in the metro area and compared it to those of all the other metro areas.  The Pittsburgh area scored 5.4 out of 10.  This low score happened despite some very good high schools in the area.

Clearly the two livability rankings offer a stark contrast in methodology and approach and produce widely varying results on the city and area.  The EIU ranking looks mostly at the city through a subjective and possibly very biased observer lens and determined Pittsburgh to be the second-most livable city in the U.S.  It doesn’t take into account any of the hard data on the cost of providing government services including education and transportation where Pittsburgh is woefully lacking when compared to other cities.

The U.S. News rankings do take into account more hard data from the U.S. Census and BLS to draw its far from glowing ranking of the metro area. The economy of the metro and the city (as we have demonstrated in Policy Brief Vol.16, No.42), as measured by jobs, have been weak to stagnant from quite some time.  Meanwhile, Census data show net migration to be another area of weakness for both the city and MSA.  Weak job gains and little or no net in migration are undoubtedly related.

The city and the MSA’s poor business and regulatory climate are key elements in the comparatively weak economic performance. And unfortunately are likely to continue to be a drag on the economy.

Tax Foundation critiques PA local taxes

Summary: A recent report from the Tax Foundation entitled “Pennsylvania: A 21st Century Tax Code for the Commonwealth” examined the state’s tax system, with particular attention to local taxes.

“No review of Pennsylvania’s tax code is complete without diving into the complexities of local taxation.” That is the opening sentence to the local section of the Tax Foundation’s report on tax reform.

In Pennsylvania counties, municipalities and school districts can levy a variety of taxes as permitted by state law with limits on the rates each tax can be imposed. There are taxes levied on residents and paid to the governmental entity where the resident lives. These include taxes on property, earned income, deed transfers, per capita and occupations. Businesses, which are subject to property and earned income taxes, may also have to pay gross receipts taxes like the business privilege tax and the mercantile tax where the business is located. Patrons of places of entertainment or recreation are subject to the amusement/admissions tax. Workers pay the local services tax where they work.

Not all taxing bodies levy all taxes available to them. When a municipality and a school district both levy a tax (other than the property tax) they must split the overall rate. Home Rule municipalities can levy rates that exceed tax rates the state has set for the same classes of counties and municipalities that have not adopted a Home Rule charter. Tax rates can also be set above regular statutory limits in Act 47 distressed municipalities if the courts approve the distressed community’s request. Property tax levies for general purposes can come up against a limit (25 mills for counties of the third through eighth class, for example) but numerous special purpose levies have no limit.

Then too, tax rates can be changed by tax-shifting provisions that require voter approval. Special state permission may grant authority to impose a tax for just one local government class. Only counties are permitted to tax hotel stays. Taxes on sales, alcohol and vehicle rentals are levied only by Philadelphia and Allegheny County and Pittsburgh is the only municipality with a payroll preparation tax.

Earned income tax payments by non-residents are subject to crediting requirements if the resident’s home municipality also levies the tax. There is statutory language governing the payment of the local services tax in cases where a worker has multiple jobs in one municipality or has jobs in more than one municipality. Exemptions and exclusions to all of the foregoing local taxes also exist.

In all, according to the state’s Taxation Manual, in 2013 Pennsylvania’s local governments collected $24.8 billion in taxes; $16.9 billion came from property taxes and $7.9 billion from all other taxes. Of the latter group, earned income taxes accounted for $4.4 billion. Collections by school districts accounted for 69 percent of all property taxes while collections by municipalities accounted for 63 percent of all other taxes.

What changes did the Tax Foundation recommend for local taxes? First a general streamlining of tax codes and statutes was suggested. Second, rather than having separate tax collectors for county, municipal and school property taxes, the foundation recommended consolidation of collections at the county level. That proposal likely stems from a good government efficiency perspective but also takes into account the near-decade-long experience with centralized county collection of the earned income tax and distribution back to the municipalities and school districts under Act 32 of 2008.

More importantly, the report suggested that the state mandate reassessments at regular intervals in order to address the inequities of the property tax system. We have addressed the multitude of problems created by outdated assessments many times over the years and concur completely. A state mandate to reassess regularly would lead to major improvement in transparency and equity in the imposition of the most burdensome tax authorized for local taxing bodies in Pennsylvania. Property taxes as a percentage of owner-occupied housing value was 1.48 percent in 2016—lower than New Jersey and Ohio but higher than West Virginia and Maryland. A property tax ranking for businesses placed Pennsylvania 33rd out of the 50 states—better than New Jersey and Maryland but lower than Ohio and West Virginia.

Due to widely varying reassessment years and pre-determined ratios, the lack of reassessment cycle and three separate tax bills, there is widespread lack of understanding of how the property tax system works and the frustration with property taxes is very high. All of that led the foundation to conclude “this is no way to operate a major system of taxation.” Harsh words for the tax that is the lifeblood of local government but there is much resistance to adopting mandated reassessments.

On the earned income tax the foundation suggested that the tax base at the local level be switched to the state’s personal income tax base which is broader and would tax unearned income (interest, dividends, capital gains, etc.). By making such a change, the foundation projected that any additional revenue could be utilized to eliminate “nuisance” taxes like the per capita, occupation and gross receipts taxes.

Surely if there were to be a significant change—such as converting the earned income tax to a personal income tax for municipalities and school districts—there would be pushback from taxpayers who are not paying taxes on unearned sources of income currently at the local level. No doubt an income threshold exemption and reductions in existing municipal and school district taxes would be part of the discussion. This proposed tax could produce very difficult enforcement and collection problems.

To be sure, a tax system that emphasizes efficiency and transparency would be a welcome change indeed. At this point, what that looks like and when it will be put in place remains to be seen.

Is Pennsylvania’s economy picking up steam?

Summary: When fiscal year 2018 came to a close June 30th and the general fund revenues were finally tallied, the commonwealth’s total tax revenues collected exceeded the previous fiscal year by 4 percent. Given the struggles in recent fiscal years with stagnating revenues (see Policy Brief Vol. 17, No. 37) does this point to a strengthening in the state’s economy?
__________________________________________________________________________________
According to the Pennsylvania Department of Revenue, total general fund tax revenue for fiscal 2018 topped $32 billion, 4 percent higher than fiscal 2017’s $30.75 billion. This is the second largest percentage increase to the total tax revenues in the last five years (fiscal 2015 was 4.96 percent greater than fiscal 2014). The other growth rates were quite anemic: 0.11 percent, 1.63 percent and 2.60 percent. While the increase in general fund tax revenue was a plus for the state, the commonwealth had estimated that collections would reach $32.13 billion, leaving actual collections about one-half of a percent below the projected level.

The corporate net income tax collections, the largest of the “corporation taxes” category, reached $2.88 billion, 4.6 percent better than the previous fiscal year’s $2.75 billion. This was the second largest yearly gain over the last five years (fiscal ‘15’s collections were 12.4 percent higher than fiscal ‘14). In fact, fiscal ‘17’s level of $2.75 billion was down 3.2 percent from fiscal ‘16 ($2.84 billion). In what had to be a surprise, this category fell 7.7 percent short of the $3.12 billion forecast. This may be a sign that businesses in Pennsylvania are not fully benefitting from a faster paced national economy. Or, it could be they are struggling under Pennsylvania’s tax and regulatory environment.

The sales and use tax, the largest of the “consumption taxes”, hit $10.38 billion in fiscal 2018, up 3.8 percent over fiscal 2017’s $10 billion. Over the last five fiscal years, the growth in sales and use tax revenue has been fairly stable, ranging from a gain of 2.14 percent (fiscal ‘17 vs. fiscal ‘16) to a high of 3.98 (fiscal ‘15 vs. fiscal ‘14). Projected sales and use tax revenue for fiscal 2018 was close to the actuals ($10.34 billion vs. $10.38 billion).

Personal income tax, the largest revenue generator, produced $13.4 billion in fiscal 2018 and accounted for 42 percent of all general fund tax revenue. This is a rise of 5.8 percent over the $12.66 billion collected in fiscal 2017 and was close to the fiscal 2015 collections gain of 5.86 percent over fiscal 2014. Forecast personal income tax collections for fiscal 2018 ($13.30 billion) were very close to the actual revenue for fiscal 2018.

By comparison, U.S. Treasury Department data indicate that thus far through the federal fiscal year (October 2017 through July 2018) personal income tax collections are up by 7.8 percent over the previous fiscal year, in spite of the tax cuts that took effect in January 2018.

Given that Pennsylvania’s fiscal ‘18 tax revenues were greater than those collected in the previous fiscal year, is the state’s economy picking up steam?

Household survey data (seasonally adjusted) for August 2018 suggest that a significant strengthening is not occurring. Compared to August 2017, the civilian labor force has fallen by 38,000 persons. That decline, combined with a gain of only 7,000 employed persons, pushed down the number of unemployed by 45,000. These data suggest that a large number of the population have stopped looking for work. Could be retirements are up or it could be discouraged workers and that would not be a healthy sign for the state’s economy.

Contrast that with the national household survey data (seasonally adjusted) which shows the civilian labor force increasing by 1.18 million over the 12 months ended in August. The number claiming to be unemployed fell by 893,000 while those reporting themselves to be employed rose by 2.07 million. Thus, strong employment opportunities have been more than ample to absorb large numbers of the previously out of work as well as newcomers.

From the August 2018 employer payroll survey (seasonally adjusted), the number of total nonfarm jobs in Pennsylvania had moved up by 65,500 (1.1 percent) from a year earlier. This continues a trend in which total nonfarm employer payrolls have struggled to break out. Particularly concerning was the drop of 4,900 from July posted in the August report.

By contrast the national nonfarm jobs rose 1.6 percent from August 2017 to August 2018. Pennsylvania has not been able to keep up with the nation in nonfarm job gains. In fact Pennsylvania has not bested the national growth rate in nonfarm jobs since coming out of the last recession in 2011.

Industry employment data are broken down into two major categories: goods-producing and service-providing. The former consists of mining and logging, construction and manufacturing while the latter consists of services such as health and education, leisure and hospitality and professional and business services. Goods-producing industries are prized for the multiplier effects on an economy with higher wages and supporting other industries, particularly the service sector industries.

Pennsylvania’s goods-producing industries have struggled to grow with the August 2018 job count up only 0.72 percent over the last 12 months. Nationally, the August year-over-year growth in the goods-producing sector rate was 3 percent. The goods-producing sector nationally has been gaining steam, while in Pennsylvania it has been weakening since March of this year.

The state’s manufacturing job count was up 0.73 percent over the past 12 months. Only June of this year posted a yearly rise of more than one percent. Nationally, the annual gain in August was a robust 2.04 percent.

Pennsylvania has kept pace with the nation as a whole in service-providing industries. The seasonally adjusted growth rate of the service-providing industries in August was 1.16 percent for the commonwealth and only 1.36 percent nationally.

One service-providing sector where Pennsylvania’s job growth tops that of the nation is in education and health services. Pennsylvania recorded a 2.62 percent 12-month rise in August while nationally that sector’s employment was up 1.93 percent during the period.
Again, while growth in service-providing sectors is welcome, these sectors do not have the wages, productivity or multiplier effects as the goods-producing sectors.

The 4 percent increase in general fund tax revenues for fiscal 2018 over 2017 should not be construed to mean the state is performing well compared to fast growing states or to the national economy. Rather, the below-national gains in nonfarm jobs in Pennsylvania point to persistent and longstanding problems with its business climate. The high corporate taxes, a smothering regulatory climate and fealty to unions all play a part in holding the state’s economy at subpar levels.